Oil: More on In Situ Storage

We've been using the term In Situ storage for at least half a decade. Here's a post from 2013:
Oil Market Goings-on During the 2008 Price Spike

I can't recall a situation in commodities that led to more polarization between market participants and the academics we depend on ex post facto to tell us what happened.
I'd get in arguments that something very strange was going on in the complex and the economists would get vitriolic in their insistence that prices were simply being driven by classic supply and demand and anyway where were the storage builds and I'd posit in situ storage and the econ guys would laugh and when it was over I'd show them a chart of the action:...

... And I'd laugh and point out that this sure looked like a bubble and that guys smarter than I, Wilbur Ross, George Soros and Paul Tudor Jones for example, had thought it was a bubble and bet accordingly and....good grief, who has time for all the jaw, jaw, jaw to swipe Churchill's locution and speaking of journalists one of the few who got that '08 was an anomaly was Izabella Kaminska and here she is again with  a sweet find of a paper....

And many more, some links below.

Here's the headline story, from Bloomberg, March 5: 

Introducing Fracklog, the New-Fangled Oil Storage System: Energy

Oil drillers expecting prices to rebound after the biggest drop in six years have come up with an alternative to storing their crude in tanks: They’re keeping it in the ground. 

It’s a new twist on an old oil-trading technique, known as a contango storage play, in which a trader buys cheap crude in an oversupplied market and saves it to lock in profits at higher future prices. Drillers who have spent millions boring holes through petroleum-rich shale rock are just waiting for prices to go up before turning on the spigot.

From North Dakota to Texas, there are more than 3,000 wells that have been drilled but not tapped, based on estimates from Wood Mackenzie Ltd. and RBC Capital Markets LLC. Waiting gives producers such as Apache Corp. and EOG Resources Inc. a better chance of receiving a higher price. It could also delay a recovery by attracting more supply every time prices rise.

“Effectively, the rock is the storage,” Troy Cook, an analyst with the Energy Information Administration in Washington D.C., said by phone. “If you can afford to hang on to it, you could certainly choose to wait until the price goes up.”

West Texas Intermediate slid $1.15 to settle at $49.61 a barrel on the New York Mercantile Exchange, down more than 50 percent since June. The front-month contract’s discount to year-out prices was $12.32 a barrel on Feb. 26, the widest gap in more than four years.

Hydraulic Fracturing
Shale drilling is a two-part process.

Once a rig bores a horizontal tunnel through the underground shale layers, another crew blasts it with a mixture of water, sand and chemicals to crack the rock and release the oil. It’s only after the second process, known as hydraulic fracturing or fracking, that the well is complete and able to produce oil.

The backlog of unfracked wells -- call it a fracklog -- is one reason that U.S. crude output is poised to climb even as companies have idled more than a third of the rigs that were drilling for oil in October. About 85 percent of U.S. wells aren’t being completed right now, Continental Resources Inc. Chief Executive Officer Harold Hamm said in a March 2 interview.

“If you shut off all drilling and just went to pure completions, you’re still talking about a half a year of production growth,” Harold York, vice president of integrated energy research at consulting company Wood Mackenzie Ltd., said Thursday by phone.

Adding Value
The U.S. produced 9.32 million barrels of crude a day the week of Feb. 27, the highest level in weekly Energy Information Administration data going back to 1983. Output will average 9.3 million barrels a day this year, up 7.8 percent from 2014, the agency predicted Feb. 10. Oil inventories at 444.4 million barrels are at the highest level since 1930.

In North Dakota, home to the prolific Bakken shale formation, the number of unfracked wells ballooned in November as companies slowed crews to avoid releasing the initial flood of oil into a low-price environment, Lynn Helms, the state’s oil and gas director, said in January....MORE

Dec. 2009 
Rex Tillerson's Carry Trade (XOM; XTO; XNG)
Feb. 2013 
Chesapeake: Aubrey McClendon and the Destruction of the Natural Gas Market (CHK)

Like Yves Smith I was on the "Oil prices are being driven by speculation" side of the argument during the oil bubble of 2008. That sentence is close to a tautology, you can't have a bubble without speculation as a market driven by final demand is, by definition, not a bubble.

Oddly enough it was market participants who took the spec side of the argument while pointy headed academics said it was a whole new market, or peak oil not speculation, that drove prices. They thought they were being profound when they asked "Where's the inventory" when really all they were doing was exposing their ignorance of the concept of in situ hoarding.

So you tell me, what caused the move from under $52 in February 2007 to $147 in the summer of 2008 to $32 that fall?

Feb. 2013 
Can Saudi Arabia Continue to Single-handedly Support the Market Price for Oil?
Mar. 2014
Barron's Cover: "Here Comes $75 Oil"
April 2014
International Gefilte Cartel Blames "Weather" For Price Increases

The real tale is in-situ storage of the whitefish, probably related to some sort of inventory financing deal which, similar to the eventual release from bondage of LME aluminum, can only have the effect of crashing the market as the extent of the inventory hoarding scam becomes apparent.

June 2014
Distressed Debt Expert Wilbur Ross: "Sovereign Debt the Ultimate Bubble"